Question : 91) If emissions permits traded freely between profit-maximizing firms in : 1384326

91) If emissions permits are traded freely between profit-maximizing firms in the private market,

A) there will be more than the optimal amount of pollution.

B) the amount of pollution abatement will be identical to that which the firms would have willingly undertaken on their own.

C) each firm will face identical costs of pollution abatement.

D) all firms will use identical pollution abatement technologies.

E) marginal abatement costs will be equalized across firms.

92) Economists often argue that a system of tradable pollution permits is cost-effective because

A) firms facing a high marginal cost of abatement will not abate at all.

B) firms facing a low marginal cost of abatement will not abate at all.

C) firms facing a marginal cost of abatement lower than the permit price will not abate at all.

D) firms with a marginal cost of abatement lower than the permit price will buy permits and abate less.

E) firms will choose their abatement so that their marginal cost of abatement equals the price of a permit, which is the same for all firms.

93) Consider a coal-fired electric-power plant that is operating under a cap-and trade-system. If its marginal cost of pollution abatement is $5 per unit and the price of the permit is $3 per unit, this firm will

A) not abate at all.

B) not buy any permits, since that would push up its costs.

C) buy permits and abate more pollution.

D) buy permits and abate less pollution.

E) sell permits and abate more pollution.

94) Consider a coal-fired electric-power plant that is operating under a system of tradable pollution permits (and the firm currently owns permits). If its marginal cost of pollution abatement is $100 per unit and the price of the permit is $150 per unit, this firm will

A) not abate at all.

B) not buy any permits, since that would push up its costs.

C) buy more permits and abate more pollution.

D) buy more permits and abate less pollution.

E) sell permits and abate more pollution.

95) Refer to Figure 17-6. Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*. The effect will be that

A) there will be no change in the quantity of abatement by each firm.

B) Firm A will abate less pollution—the amount Q2, and Firm B will abate more pollution—the amount Q1.

C) Firm B will abate less pollution—the amount Q2, and Firm A will abate more pollution—the amount Q1.

D) Firms A and B will each abate Q2 units of pollution.

E) Firms A and B will each abate Q0 units of pollution.

96) Refer to Figure 17-6. Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*. The effect will be that

A) Firm B will sell permits to Firm A, pollute less, and reduce its costs by the area 1; Firm A will buy permits from Firm B, pollute more, and increase its costs by the area 4.

B) Firm B will sell permits to Firm A, pollute more, and reduce its costs by the area 1; Firm A will buy permits from Firm B, pollute less, and increase its earnings by area 4.

C) Firm B will buy permits from Firm A, pollute less, and increase its costs by the areas 2+3; Firm A will sell permits to Firm B, pollute more, and reduce its earnings by areas 4+5.

D) Firm B will buy permits from Firm A, pollute more, and reduce its costs by the area 1; Firm A will sell permits to Firm B, pollute less, and increase its earnings by area 5.

97) Refer to Figure 17-6. Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*. Firm B will buy permits from Firm A because

A) its total cost of abating less (areas 1+2+3) exceeds the cost of buying the permits (areas 2+3).

B) its total savings from abating less (areas 1+2+3) exceed the cost of buying the permits (areas 2+3).

C) Firm B has lower costs of pollution abatement than Firm A.

D) its total savings from abating less (areas 1+2+3) exceed the total costs of Firm A abating more (area 6).

E) Firm B can buy the permits at a lower price than Firm A.

98) Refer to Figure 17-6. Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is . Firm A will sell permits to Firm B because

A) Firm A’s total cost of abating more pollution (areas 5 + 6) is less than the revenue it earns from selling the permits (areas 4 + 5 + 6).

B) Firm B has lower costs of pollution abatement than Firm A.

C) Firm A can buy the permits at a lower price than Firm B.

D) the revenue Firm A earns from selling permits (areas 5 + 6) is greater than the cost it incurs from abating more pollution (area 6).

E) Firm A’s total cost of abating more pollution (area 6) is less than the revenue it earns from selling the permits (area 4 + 5).

99) In a competitive market for tradable pollution permits, the quantity of permits (for a given amount of pollution) is set by ________ and the equilibrium price is determined by ________.

A) market forces; government policy

B) government policy; the average cost of pollution abatement

C) government policy; market forces

D) market forces; market forces

E) government policy; government policy

100) Suppose a competitive market for tradable pollution permits is in equilibrium at , with the quantity of permits being set by government policy at . If technological advances reduce the marginal cost of pollution abatement, then

A) the equilibrium price of permits will fall below .

B) the equilibrium price of permits will rise above .

C) the equilibrium quantity of permits will fall below .

D) the equilibrium quantity of permits will fall above .

E) there will be no change in or .